Westminster Blog

A major new extradition row has broken out between Britain’s Serious Fraud Office and the US Department of Justice over Libor manipulation at UBS.

The SFO is understood to be angry that the DoJ is seeking the extradition of Tom Hayes, a former UBS employee who was charged on Wednesday by the American DoJ as part of its probe into Libor manipulation. That came on the same day that the bank agreed to pay $1.5bn to US,UK and Swiss authorities.

The SFO had been aware of the plans by its American counterpart to charge Mr Hayes before the British agency arrested him a week ago. He was bailed without charge. That in turn annoyed the DoJ, which was not tipped off about the arrest.

Meanwhile pressure is growing from British MPs who believe that Mr Hayes, as a British citizen, should face justice in this country.

Sir Menzies Campbell, the senior Lib Dem MP, told me that the allegedly illegal acts had been committed in Tokyo– and therefore the choice should be between a trial in the UK or a trial in Japan.

“It would be stretching territorial jurisdiction to a remarkable extent if this man was to be put on trial in the United States,” he said.

John Hemming, another Lib Dem MP, claimed the US was behaving “arrogantly”.

“You have to ask, is it the job forAmericato police the whole world?” he said. “The Libor issue involved people around the world, America wants to do the whole job and seem to have no limit on what is outside their remit.”

Mr Hemming said that his concerns stemmed from the earlier case of the so-called NatWest Three – bankers extradited in 2006 to face Enron-related charges in the US. He argued that the US plea-bargain system incentivised people to plead guilty even when they were not.

“They have a very difficult decision,” Mr Hemming said. “If they plead ‘not guilty’ they could face 35 years and if they plead ‘guilty’ it may only be three. That is not a fair choice.”

The question now is whether the SFO believes it has enough evidence to charge the former trader; a move which could prevent the US extradition process.

Keith Vaz, the Labour MP who chairs the home affairs select committee, said the cases of Gary McKinnon – the computer hacker whom the UK declined to extradite – and the Nat West Three meant it was “far better” for such matters to be dealt with in the UK.

“If they have sufficient evidence, they should go ahead and charge and prosecute here,” Mr Vaz said.

That is not to say that the mood in Westminster is entirely hostile to the US move, however.

One Tory MP with deep concerns about the the extradition system said that the waters were less clear when the alleged offences had taken place outside the UK.

“If you have a genuine cross-border case and the loss is much more dispersed, it’s not an issue I would die in the ditch for,” he said. “You end up asking why the sleepy old SFO aren’t doing their job.”

People familiar with the situation say that the developments signal a breakdown in co-operation between global agencies in the sprawling Libor probe, which has embroiled 20 of the world’s biggest banks and interdealer brokers.

Emily Thornberry, shadow attorney-general, said she had been examining why the US authorities seemed to be so much better than those in the UK at prosecuting fraud.

“The time it takes for us to process cases, the size of penalties, and the amount of money we spend on processing them is all very different,” she said.

The Labour MP said the budget of the SFO was being cut from £57m to £30m by the end of the Parliament – even though the coalition had recently granted an extra annual £3m to the agency.

“They look across the pond and see we really don’t pull our weight, and I kind of agree with that, we need to look in relation to the fines that you extract from people, the proper resourcing of the SFO,” she said. “The agency is in a really bad way, having recently paid out £1m to pay off a couple of employees, and with the Tchenguiz brothers suing them.”

Increasingly people had a perception that the UK authorities were not prosecuting strongly enough, she said: “I think there is some truth in that”.